Henry Blodget today demonstrates an alarming lack of ability to perform basic math in a post entitled “Watch Gowalla Pretend It’s Not Fighting For Its Life Against Foursquare.” In the post, he launches a full-out, succinct attack on Gowalla:

After reading Kara Swisher’s happy intro to her interview with Gowalla CEO Josh Williams, you might be forgiven for thinking the location-based space is so vast that there are no competitive pressures and that all the players will co-exist as a happy, successful family.

Please.

If ever there was a business in which one player will emerge as the industry standard and all other players will be toast, it’s this one.

This is annoying on a number of levels.

First of all, and most basic, when Blodget says that this is a winner take all market, he’s talking about a couple of startups that with the most liberal estimates being used (and assuming absolutely zero overlap between the two userbases) have at best two million users between them. 

More than likely, though, the two startups have at best around 400,000 users between them, and even less than that are active userbase.  I don’t say this to down on these two companies, but let’s be frank: this is a nascent idea, this location based participation.  We haven’t even leapt past the idea that it’s socially acceptable to constantly share your location data within the early adopter community, much less the world at large.

When you consider that this has a potential consumer base of billions of users worldwide, the idea that there has to be a winner, and a winner declared today, it’s describable by no other word than laughable.

Add to that the fact that, as I talked about last week, that neither one of these services will end up being the mainstream winner (due to the fact that one of the “big guys” like Facebook or Twitter, or even one of the actual big guys like Google or Microsoft, will end up integrating these very simple features into one of their products or services).

Let’s Suspend our Disbelief in Math For a Minute Though

We all know what’s going on here if you’ve been following this narrative in the blogs – there are a few bloggers and sites in particular that started using Foursquare early on and have been evangelizing the service, overreporting user numbers, and framing this entire market as a war when the two services founders are well aware that there is no war to be had here.

And while a lot of hyperactive blogging is being done in this still very nascent arena about how an all-out geolocation war is going on, it’s mostly just the smoke from overfunding going on in the hopes of finding the next Facebook-Twitter nexus.

Indeed, Austin, Texas-based Gowalla’s raised over $10 million from such high-profile investors as Ron Conway, as well as from top-notch Silicon Valley venture firms, while its main rival, Foursquare, is now deciding which VC pocket it will pick at what insane valuation.

I’m, personally, not an incredibly loud fan of either one of the services simply because up until last weekend, I wasn’t a user of a GPS-enabled smartphone. Even still, due mainly to my sedentary blogging lifestyle, “checking-in” isn’t a big part of my daily routine (“@rizzn checks in from his fridge”, “@rizzn checks in from his couch”, rinse and repeat. Louis Gray just reminded me that he addressed this problem rather thoroughly in a recent post called “Should Boring Married People Check In On Location Apps?”).

I am somewhat partial to Gowalla, though, having seen it in an early demo nine or ten months ago when it began as a side project for parent company Alamo Fire. They presented it at one of the local Dallas coworking spaces during a day of five minute demos with the framing of “hey, this is this sorta neat thing we’re working on to demonstrate the capabilities of the iPhone.” From there it grew organically to where it is today with very little in the way of a PR push, and no marketing dollars.  It grew on its own merits.

The recent over-funding of Foursquare, all the VC’s PR firms (as well as the PR firms for Foursquare) combined with the embedded evangelists at the big blogs are in overdrive. Any growth in the usership of Foursquare is due almost certainly to it’s high-profile media coverage, and secondarily on the merits of the service itself.

Any war here is purely one of media coverage rather than for any sort of market domination. The only way either one can win is for the majority of tech pundits to decide “Yes, [LBS Network] is the winner, and we’ll relegate the other guy to Zune-level coverage status from now to eternity.”

Don’t think it can happen? Look at the Pad Computing market.  For the last twenty years, gadget makers and computer sellers have tried selling these things, calling them pads, tablets, slates, and pen based computing, along with dozens of other re-branding efforts.  Media momentum is everything, and Steve Jobs has been branding the PC market as a #fail for the last several years, along with the solid support of high profile evangelists in the media.

I

n all truthfulness, particularly in terms of market penetration and sales numbers, Windows and the PC platform roundly trounce Apple in almost every category imaginable, but if you were to judge a winner between the two players in terms of public sentiment purely by looking at press coverage, Apple looks like the “winner.”

So when Apple finally launches a Pad Computing device, it sells (depending on which estimates you believe) between 300k and 700k units at launch.

Foursquare Wants a War, Which Means Gowalla’s Probably “Winning”

The whole “war” framing doesn’t help anyone on the winning side, typically.  It generally helps the underdog.

So when I see evangelists for Foursquare pushing so hard for us to buy into this “hot war” between the location based social networks, it’s a mental cue for me to expect that the opposition has a lot more going for it than meets the eye. In the case, as I said, in the Apple vs. PC war, while it’s clearly arguable and subjective which set is a superior set of products, the winner in terms of marketshare is the one not pushing the line on the war between the two. In the case of Gowalla vs. Foursquare, I think the aspect to pay attention to is the quality of userbase. 

I think, if we looked closer at the two sets of userbases, Foursquare may have larger numbers, Gowalla likely has a more engaged user and a larger active userbase. Similarly, looking at the growth rate, we’ll see a much more organic growth curve on Gowalla’s userbase (they’ve been around longer and haven’t received as much hype until very recently).  Typically, when you receive most of your users from blog hype cycles, the growth is a spike of non-engaged, fairweather users, rather than users who will stick around and are genuinely interested in your service.

These all are inferences and best guesses, but based on my experience in looking at these types of startups and markets since the inception of “Web 2.0,” which means it’s rather informed and frank analysis than page-view grabbing hype like most of what we’ve seen so far.

Rather than closely watch these two companies and any imagined competition between them, the real story here is to watch the larger ecosystem of Google, Twitter, Facebook and others to see what aspects of their platform start to look like these two startups.  Once the validation (or ganking, depending on your perspective) begins, you’ll really see some rapid innovation take place.